Clearstream Launches Tri-Party Collateral Re-Use Service

Clearstream has launched its long-awaited collateral re-use or re-hypothecation service as a collateral giver
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Clearstream has launched its long-awaited collateral re-use or re-hypothecation service, enabling users of the ICSD’s tri-party collateral management service to re-allocate collateral lodged with them by one tri-party counterpart to raise finance via second tri-party exposure,as a collateral giver.

“This new functionality will remove a key limitation to the growth of the European market share of tri-party repo in that it will make more collateral available,” says a spokeswoman for Clearstream in Luxembourg. The ICSD claims the service is a first in the European collateral management market. “There will be no limitations to participation, with no restrictions on eligibility profiles, making it the first fully automated cross-quality and cross-product collateral `re-use’ functionality offered by a tri-party collateral agent,” she adds.

The re-use functionality is being made available across all collateral management services where Clearstream acts as a tri-party agent: repo, securities lending and other activities covered by tri-party collateral management agreements with the ICSD. The new service is one of a number of product and service improvements Clearstream expects to roll out in its tri-party collateral management services over the coming months.

The European repo market has grow rapidly in recent years to over € 5.8 trillion in outstandings, according to the International Capital Markets Association (ICMA) twice-yearly survey of the industry, but tri-party providers such as Clearstream, Euroclear, JP Morgan and Bank of New York have struggled to grow their share as rapidly as the market. This reflects competition from electronic trading platforms supported by central counter-parties, and a perception that tri-party is relatively expensive. However, the introduction of a re-use fuctionality, by increasing the liquidity of collateral in tri-party, is expected to add significantly to growth in the use of tri-party agreements.

Clearstream’s Global Securities Financing services, which include tri-party repo, collateral management and securities lending, collectively experienced a rise of 33.6 percent for the first half of 2006 compared to the same period last year.

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